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Article
Publication date: 1 January 2006

DeQing Diane Li and Kenneth Yung

Though stock portfolio return autocorrelation is well documented in the literature, its cause is still not clearly understood. Presently, evidence of private information…

Abstract

Purpose

Though stock portfolio return autocorrelation is well documented in the literature, its cause is still not clearly understood. Presently, evidence of private information induced stock return autocorrelation is still very limited. The difficulty in obtaining foreign country information by small investors makes the private information of institutional investors in the ADR (American Depository Receipt) market more significant and influential. As such, the ADR market provides a favorable environment for testing the effect of private information on return autocorrelation. The purpose of this paper is to address this issue.

Design/methodology/approach

In this paper, ADRs are sorted annually into three groups based on market equity capitalization. Within each capitalization group, ADRs are further sorted into three groups based on the fraction of shares held by institutional investors. Each ADR is assigned to one of the nine groups and group membership is rebalanced each year. The return autocorrelation of individual ADR securities and ADR portfolios for each group are then calculated.

Findings

The results demonstrate that ADR individual stock and portfolio daily return autocorrelations are positively related to institutional ownership. It is also found that other explanations, such as non‐synchronous trading, bid‐ask spread and volatility of ADR, cannot explain the positive relation between daily return autocorrelations and institutional ownership of ADR.

Originality/value

Since ADR market is more suitable than other markets for testing the role of private information, stronger and clearer results are got accordingly. This paper suggests that trading strategy based on private information of institutional investors can lead to stock return autocorrelation in ADR daily returns.

Details

Review of Accounting and Finance, vol. 5 no. 1
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 28 April 2022

David B. Bryan and Terry W. Mason

This study aims to examine whether earnings autocorrelation affects the risk of an accounting restatement.

Abstract

Purpose

This study aims to examine whether earnings autocorrelation affects the risk of an accounting restatement.

Design/methodology/approach

This paper uses logistic regression and identifies restatements between 2004 and 2016. Following prior research, (Dao et al., 2012; Francis and Michas, 2013; Francis et al., 2013; Lennox and Li, 2014; Lobo and Zhao, 2013; Paterson and Valencia, 2011), this study allows time between the end of our sample period and the date that this study obtained the restatement data because it takes time for material misstatements to be identified.

Findings

Bryan et al. (2018) report a negative association between autocorrelation and audit fees, suggesting that auditors view lower autocorrelation as increasing inherent risk. This study finds that autocorrelation is negatively related to accounting restatements, implying that although auditors react to lower autocorrelation by increasing their risk assessments (Bryan et al., 2018), their risk response is not sufficient. This study finds that autocorrelation has a fairly large effect: a shift from the 75th to the 25th percentile of autocorrelation is associated with a 9.38% increase in the likelihood of a restatement.

Originality/value

This study contributes to the stream of research that investigates the determinants of restatements. Not only do this study identifies autocorrelation as a factor that contributes to restatements, but importantly, this study’s results reveal a fairly substantial effect size: a shift from the 75th to the 25th percentile of autocorrelation is associated with a 9.38% increase in the likelihood of a restatement. While Bryan et al. (2018) find that autocorrelation affects audit fees, this study links autocorrelation to a more drastic consequence: accounting restatements.

Details

Review of Accounting and Finance, vol. 21 no. 3
Type: Research Article
ISSN: 1475-7702

Keywords

Book part
Publication date: 12 December 2007

Suk-Joong Kim and Michael D. McKenzie

This chapter considers the relationship between stock market autocorrelation and (i) the presence of international investors which is proxied by the level of capital…

Abstract

This chapter considers the relationship between stock market autocorrelation and (i) the presence of international investors which is proxied by the level of capital market integration and (ii) stock market volatility. Drawing from a sample of nine Asia-Pacific stock indices, significant evidence of a relationship between the presence of international investors and the level of stock market autocorrelation is found. This evidence is consistent with the view that international investors are positive feedback traders. Robustness testing of this model suggests that the trading strategy of international investors changed as a result of the Asian currency crisis. The evidence for the role of volatility in explaining autocorrelation is, however, is generally weak and varies across the sample countries.

Details

Asia-Pacific Financial Markets: Integration, Innovation and Challenges
Type: Book
ISBN: 978-0-7623-1471-3

Book part
Publication date: 2 March 2011

Galina Smirnova, Olga Saldakeeva and Sergey Gelman

The phenomenon of positive autocorrelation in daily stock index returns is often viewed as a consequence of stable behavioural patterns of certain investor groups (see…

Abstract

The phenomenon of positive autocorrelation in daily stock index returns is often viewed as a consequence of stable behavioural patterns of certain investor groups (see, e.g., Sentana & Wadhwani, 1992; Koutmos, 1997). However, such patterns may change due to extreme events, that is, financial crises, and thus affect the autocorrelation in returns. Emerging markets and especially BRIC countries have experienced severe crises in the last 20 years and are therefore a suitable object for studying this effect.

The focus of this chapter is on identifying substantial changes in the autocorrelation of BRIC markets' index returns after experiencing upheavals of the financial system. For this purpose, we look for structural breaks in the parameters of an ARMA–GARCH model with the standard endogenous search procedure.

Our approach yields no statistically significant evidence of the autocorrelation changes due to the crises. Only in India the decline in autocorrelation in 1998 seems to be economically relevant, but is not significant statistically. Significant shifts that we could identify were rather related to microstructural changes, such as abolishment of price change limits by China and the removal of a leading player in India's market in 1992. All in all our results suggest that even though extreme negative events on financial markets may induce changes in feedback trading strategies, their influence on autocorrelation is not pronounced enough. The impact of other factors, in the first place of regulatory changes, seems to be of larger relevance.

Details

The Impact of the Global Financial Crisis on Emerging Financial Markets
Type: Book
ISBN: 978-0-85724-754-4

Keywords

Article
Publication date: 1 January 2004

MITCHELL RATNER, GULSER MERIC and ILHAN MERIC

This study examines the cross‐autocorrelation of size‐based portfolio returns in a sample of 15 major European markets using daily data from January 1990 through December…

Abstract

This study examines the cross‐autocorrelation of size‐based portfolio returns in a sample of 15 major European markets using daily data from January 1990 through December 1999. Previous studies have primarily used U.S. data. This study extends previous research by considering results in multiple European exchanges. We examine whether a difference in size‐based portfolios exists by testing cross‐autocorrelation, granger‐causality, and asymmetric responses in the European markets. The results confirm that large stock portfolio returns lead small stock portfolio returns in most European countries, and that cross‐autocorrelation is present both within and between European financial markets.

Details

Studies in Economics and Finance, vol. 22 no. 1
Type: Research Article
ISSN: 1086-7376

Article
Publication date: 8 May 2017

Shah Saeed Hassan Chowdhury, M. Arifur Rahman and M. Shibley Sadique

The main purpose of this paper is to investigate autocorrelation structure of stock and portfolio returns in a unique market setting of Saudi Arabia, where nearly all…

Abstract

Purpose

The main purpose of this paper is to investigate autocorrelation structure of stock and portfolio returns in a unique market setting of Saudi Arabia, where nearly all active traders are the retail individuals and the market operates under severe limits to arbitrage. Specifically, the authors examine how return autocorrelation of Saudi Arabian stock market is related to factors such as the day of the week, stock trading, performance on the preceding day and volatility.

Design/methodology/approach

The sample consists of the daily stock price and index data of 159 firms listed in Tadawul (Saudi Arabian Stock Exchange) for the period from January 2004 through December 2015. The methodology of Safvenblad (2000) is primarily used to investigate the autocorrelation structure of individual stock and index returns. The authors also use the Sentana and Wadhwani (1992) methodology to test for the presence of feedback traders in the Saudi stock market.

Findings

Results show that there is significantly positive autocorrelation in individual stock, size portfolio and market returns and that the last two are almost always larger than the first. Return autocorrelation is negatively related to firm size. Interestingly, return autocorrelation is positively related to trading frequency. For portfolios, autocorrelation of returns following a high absolute return day is significantly higher than that following a low absolute return day. Similarly, return autocorrelation during volatile periods is generally larger than that during tranquil periods. Return correlation between weekdays is usually larger than that between the first and last days of the week. Overall, the results suggest that the possible reason for positive autocorrelation in stock returns could be the presence of negative feedback traders who are engaged in frequent profit-taking activities.

Originality/value

This is the first paper that thoroughly investigates the autocorrelation structure of the returns of the Saudi stock market using both index and individual stock returns. As this US$583bn (as of August 21, 2014) market opened to foreign institutional investors in June 2015, the results of this paper should be of significant value for the potential uninformed foreign investors in this relatively lesser known and previously closed yet highly prospective market.

Details

Review of Accounting and Finance, vol. 16 no. 2
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 10 April 2007

Robert W. Faff and Michael D. McKenzie

This paper empirically assesses the determinants of conditional stock index autocorrelation with particular emphasis on the impact of return volatility that are…

2018

Abstract

Purpose

This paper empirically assesses the determinants of conditional stock index autocorrelation with particular emphasis on the impact of return volatility that are theoretically linked through the behaviour of feedback traders.

Design/methodology/approach

The S&P 100, 500 and the NASDAQ 100 index are considered and volatility in each series is captured using option‐implied estimates taken from the Chicago Board Options Exchange. A seemingly unrelated regression approach is used in which trading volume and volatility are simultaneously modelled.

Findings

The results of this study suggest that low or even negative return autocorrelations are more likely in situations where: return volatility is high; price falls by a large amount; traded stock volumes are high; and the economy is in a recessionary phase.

Research limitations/implications

The results confirm that previous related work showing a link between autocorrelation and volatility is not induced by a mechanical relation.

Practical implications

Usage of endogenously determined volatility measures in this area of the literature is justified.

Originality/value

This study provides a robustness test of the autocorrelation/volatility relation, as well as a further exploration of the utility inherent in option‐implied volatility.

Details

International Journal of Managerial Finance, vol. 3 no. 2
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 10 May 2011

Mihnea Constantinescu

The failure of the efficient market hypothesis has a direct bearing on the Geometric Brownian Motion model of asset returns. The current paper aims to investigate the…

Abstract

Purpose

The failure of the efficient market hypothesis has a direct bearing on the Geometric Brownian Motion model of asset returns. The current paper aims to investigate the effect that the autocorrelation in the time‐series of returns has on the calculation of expected shortfall (ES) for an asset‐liability investor.

Design/methodology/approach

The regression model is selected according to the Akaike and the Schwarz information criterion. A series of tests are used to insure the stability of the autocorrelation parameters. Autocorrelation‐adjusted formulas for volatility and cross‐asset correlations are then employed for the computations.

Findings

The presence of autocorrelation changes the values of most of the correlation parameters used in the calculation of the ES of the risk bearing capital (RBC) – in some cases the cross‐asset correlation parameters double. Once the presence of smoothing is accounted for, the ES increases by 1 per cent in relative value.

Research limitations/implications

Other asset classes may also feature smoothed time‐series requiring thus an account of their autocorrelation structure and their interaction with the property asset. An analysis of the time stability of the cross‐asset correlations may also improve the estimation of the optimal RBC.

Originality/value

The proposed method focuses on the proper calculation of the RBC through the judicious estimation of the relevant risk measure for an investor who, while not having access to the underlying data pool from which the property index is computed, cannot adjust the index for the potential presence of temporal aggregation and market illiquidity.

Details

Journal of European Real Estate Research, vol. 4 no. 1
Type: Research Article
ISSN: 1753-9269

Keywords

Abstract

Details

Structural Road Accident Models
Type: Book
ISBN: 978-0-08-043061-4

Article
Publication date: 27 January 2022

Sirasani Srinivasa Rao and Subba Ramaiah V.

The purpose of this research is to design and develop a technique for polyphase code design for the radar system.

Abstract

Purpose

The purpose of this research is to design and develop a technique for polyphase code design for the radar system.

Design/methodology/approach

The proposed fractional harmony search algorithm (FHSA) performs the polyphase code design. The FHSA binds the properties of the harmony search algorithm and the fractional theory. An optimal fitness function based on the coherence and the autocorrelation is derived through the proposed FHSA. The performance metrics such as power, autocorrelation and cross-correlation measure the efficiency of the algorithm.

Findings

The performance metrics such as power, autocorrelation and cross-correlation is used to measure the efficiency of the algorithm. The simulation results show that the proposed optimal phase code design with FHSA outperforms the existing models with 1.420859, 4.09E−07, 3.69E−18 and 0.000581 W for the fitness, autocorrelation, cross-correlation and power, respectively.

Originality/value

The proposed FHSA for the design and development of the polyphase code design is developed for the RADAR is done to reduce the effect of the Doppler shift.

Details

International Journal of Pervasive Computing and Communications, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1742-7371

Keywords

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